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SYNDICATIONThe proceeds from a property closing in Costa Rica need to appear correctly in a deed
I had what looked like a simple closing and it almost turned into a nightmare, just because the rules are changing on us.
After closing, the seller deposited the proceeds of the sale in her local bank account (a cashier's check), so after clearance, she could wire the money to her account in the US. Once the cashier's check cleared the next day, the bank froze the funds due to bank compliance and proof of origin of the funds. The closing attorney, the seller and the realtor all went through hell for two weeks but eventually got it all straightened out. Let me tell you what happened.
In most real estate transactions, it is customary for me and all my agents to write up a formal offer which the buyer's attorney can use to write up an option to purchase-sale agreement, in Spanish called a "promesa reciproca de compra y venta", where the buyer promises to purchase at X amount in X amount of time and the seller agrees to this. The option explains everything about the property and the details of the transaction and how funds will be disbursed. In this case, both the seller and the buyer were out of the country and to make them both go through a Costa Rican consulate to sign the option didn't make any sense. Therefore, we went straight to closing without even writing up an option to purchase-sale agreement.
Nobody likes to pay taxes, and buyers and sellers always try to pay as little closing cost as possible. In Costa Rica, properties have a value in the property register which is much lower than the actual value. In many cases, it was the original value of the lot before the house was built, many years ago. In other cases, it is a value that was used when the property was bought by the actual owner, 30 years ago, when the dollar exchange was ¢8,70. To save on closing costs, most real estate attorneys have mostly been accommodating to transfer the title at a value a little higher than the registered value but not at the real sales price. This is one of the reasons for the potholes and the lack of infrastructure in this beautiful country, but that is a different story, which we'll keep for another newsletter. So when your attorney writes up the deed of the transfer of the property, and he uses a sales price that does not match the cashier's check that the seller will take to his/her bank, the seller will be in trouble as the paperwork does not match the check. This is what happened in the case of my seller last week. The bank had a deed with a much lower amount that the amount stated on the check. Instead of rejecting the deposit, the bank accepted the deposit, waited until the check cleared and then froze the funds, alleging the proof of origin of the funds was incorrect. The money laundering laws in Costa Rica oblige the banks to make sure that the funds don't come from an illegal source.
So what should you do about that? I'm not an attorney, but I would say you first need to find yourself a real estate agent who knows what he/she is doing and will recommend the buyer as well as the seller how to do the real estate transaction without any problems. But you also need a real estate agent who will be there when you hit on problems AFTER the transaction. You will find that most real estate agents will disappear on you as soon as they have received their commission check.
I think that, in most cases, a photocopy of the option to purchase-sale agreement accompanying the deposit of the proceeds should be enough, if in the agreement you use the correct sales price. But if you really want to be totally sure this is done correctly, do it like it works in other countries too and register real the sales price in your transaction.
In the case of a transfer of shares of the corporation, the copy of the option to purchase-sale agreement should suffice as there will be no deed. But note that the buyer's attorney might not like the idea of transferring shares of an existing corporation for the risk of that corporation having hidden debts and obligations.
How does this all work in the negotiations of the purchase of the property? Almost customarily, when the buyer makes a low offer on the property, the seller will counter this offer but tell the buyer to pay the closing cost. Therefore, the buyer will look how to keep the closing cost as low as possible, which can only be done by either taking over the corporation (if the property is owned by a corporation) but then the buyer will have the risk of buying a corporation with problems, or by using a fake closing price. This, in turn, will not suit the seller as he might not have any access to the funds as they will be frozen by the bank.
In short, both the buyer as well as the seller should make very sure they use a reliable and experienced real estate agent, preferably one who is an affiliate to the American European Real Estate Group.